Troubled Altamonte Springs brokerage tries to fend off big fine

With its top executive suspended for the second time in less than a year, an embattled Altamonte Springs securities brokerage is trying to fend off a regulatory fine that the firm said could cripple the business.

Merrimac Corporate Securities Inc.'s chief executive, Stephen D. Pizzuti, began serving a 90-day suspension last month as part of settling allegations he ignored or failed to prevent an alleged $23 million hedge-fund scheme operated by two Merrimac brokers, according to the Financial Industry Regulatory Authority. He was also fined $15,000. Pizzuti did not admit any misconduct.

The latest sanction against Pizzuti by the agency, known as FINRA, came nine months after he received a similar 90-day suspension for allowing another multimillion-dollar investment scheme to be run as a side business by Merrimac brokers who have since left the firm, agency records show. Pizzuti was fined $10,000 in that case. He is not related to the Pizzuti Companies,the Ohio-based developer that builds in the Orlando area.

Regulators also slapped Merrimac with a $100,000 fine for failing to have proper controls in place that could have detected and stopped the former brokers' scheme, according to case records.

Merrimac has disputed that fine, claiming it was exorbitant and could undermine the firm's shaky finances. Records show that the firm posted a loss of nearly $7,100 on revenues of $3 million in 2012, the most recent data available.

Regulators set up a 10-month payment plan to lessen the impact of the fine, but Merrimac has appealed the ruling. A lawyer for the firm said Merrimac's infractions involved relatively minor matters and that FINRA had no conclusive evidence of major wrongdoing.

"We believe the fine was out of line, based on the firm's financial condition at that time," said Russell L. Forkey of Fort Lauderdale. "But that's the way FINRA handles these enforcement actions. They throw everything but the kitchen sink at you, and you have to look at the potential legal costs of fighting it compared with accepting a settlement."

FINRA accused now-former Merrimac brokers Richard Alan Pizzuti (Stephen Pizzuti's brother) and Dan Voccia of using false and misleading tactics in raising about $4 million from more than 30 investors. The money was placed in high-risk, private-placement securities, which defaulted and left most investors absorbing huge losses. Both brokers were eventually barred from the securities industry.

In the hedge-fund scheme, the regulatory agency accused Merrimac brokers Kevin A. Tuttle and John W. DuBrule of fabricating client account statements, inflating the value of clients' holdings and misappropriating more than $141,000 in funds. Tuttle was found liable for negligence, suspended for two years and fined $50,000. DuBrule was permanently barred from the securities industry.

In both cases, the brokers operated their schemes as a side business, trading on the Merrimac name and often soliciting Merrimac customers to invest in their funds, according to FINRA.

Regulators said Merrimac's top managers — Stephen Pizzuti and now-former president David W. Matthews — bear responsibility for letting the schemes happen.

How damaging have the enforcement actions been to the credibility of Merrimac and Pizzuti? Not as much as you'd think, said Forkey, the lawyer.

"The fact is nobody has every really found that they did anything wrong," he said.